Poke me: Why aren’t NRIs buying Indian property?

Many NRIs are holding back because of fear of whether property developers will deliver the product within reasonable time frames.

This week's "Poke Me", invites your comments on why aren't NRIs buying Indian property. The feature will be reproduced on the edit page of the Saturday edition of the newspaper with a pick of readers' best comments.

So be poked and fire in your comments to us right away. Comments reproduced in the paper will be the ones that support or oppose the views expressed here intelligently. Feel free to add reference links etc., in support of your comments.

By: E Jayashree Kurup

Did the devaluation of the rupee result in a windfall for developers? Are NRIs queuing up to buy houses that by default give them a 25 per cent discount, thanks to a weaker rupee?

Surprisingly, developers are not laughing all the way to the bank with NRI funds. In fact, most NRIs are preferring to transfer funds into their Indian accounts to benefit from the rupee-dollar mismatch but thinking twice before putting that money into the Indian property market.

Many NRIs are holding back because of fear of whether property developers will deliver the product within reasonable time frames. Says SK Sayal, Director & CEO, Alpha G Corp, "Since the property market in India has softened and there is a rupee-dollar differential this should have been an ideal time to buy. But as the property delivery track record in India has not been great, there is a fear in the mind of potential buyers. For those who want to buy for future self use, this is a good time to buy. But for those who want to benefit from the rupee-dollar differential this is an uncertain market in an uncertain economy. They will look around and consider a lot before investing."

C Sekhar Reddy, President, Confederation of Real Estate Developers Association of India (CREDAI,) says "Across the board NRIs are exploring the potential of the Indian markets. But the bulk of the search has been for projects that are either well into the construction phase or close to possession. This way the NRI feels that there is a greater chance of the project being completed and possession being handed over."

Kruti Jain of Kumar Builders of Pune is part of the optimistic groups which are cashing in on their previous delivery schedules and past reputation to help them sell. While the West Asian NRIs have already come and gone from the Indian markets, the rest will come in Nov-Dec 2013. She finds a bump-up in the number of enquiries and even a rise in the number of potential site visits expected to take place later in the year. "Many NRIs have started transferring money into their Indian banks to benefit from the rupee-dollar differential, but that money has not really started to flow into the real estate sector and we are not even fully sure how much of that will flow into the sector."

Whatever the reason for the funds not flowing in yet, most developers are planning a bump-up in the promotions to NRIs. V Suresh, Principal Executive Officer (PEO) of Hiranandani Constructions (Hirco) attributes the slow pace of NRI investments into property to the NRI being unsure of whether this is a good time to buy in India. Also the fact that globally the money markets are not really soaring also makes the NRI investor hesitant to put their money into long term property investments in India. A further issue is the fact that repatriation of funds is difficult when the NRI buyer decides to sell, which makes exit strategies difficult to plan.

So, are there possible solutions to this problem? Every arm of the industry and policy makers has to function in tandem. The industry needs to adhere to building schedules and actively keep the projects under construction. This helps draw NRI investments towards the later stages of construction. The better the quality of construction, the better will be the chances of selling them. The policy makers can help by pushing the regulator and also the dynamics of how it will function. Education of the customers on the role of the regulator could go a long way in building consumer confidence, especially of those who are overseas.

As a longer term policy, can the Reserve Bank of India, the concerned ministries and the existing regulators such as the National Housing Bank, start focusing on NRIs to see how they can bring in funds and how long they need to hold it in the country before they can exit the investment? Developers too, need to lay their entry and exit strategies clearly on the table to woo NRI buyers.

Unlike the NRIs of earlier days who only sought premium super luxury projects, today he has functioned amidst the globally insecure economic environments. So, they are looking at smaller investments and are willing to move to peripheral areas if the investment gives them value for money in the medium or longer term. As a result, Urban Local Bodies which have to match off-site infrastructure such as roads, drainage and power facilities with the quality of private construction too, needs to pull up their socks to attract and hold investments in their cities.

Essentially, what I am proposing is a strategy from the entire real estate industry to draw the NRI funds into the real estate sector, hold it there and also to bump up the long-term prospects of the Indian residential property markets.